Ford Example

Enfield Basildon
Belfast Instruments, fuel Radiators, water
Carburetors and and water gauges, pump assembly,
distributors plugs engine components

Treforest Genk
Spark plug Body panels,
insulators road wheels

Leamington Wülfrath
Foundry production Transmission
of engine parts, engine
components components

Dagenham Cologne
Final assembly Die-cast transaxle
casings, gear and
engine components
Bordeaux
Transmissions
Valencia Saarlouis
Final assembly Final assembly
 Why GSCM????
GLOBAL MARKET FORCES
 Foreign competition in local markets
 Growth in foreign demand
 Global presence as a defensive tool
 Companies forced to develop and enhance leading-edge
technologies and products.

TECHNOLOGICAL FORCES
 Knowledge diffusion across national boundaries, hence
need for technology sharing to be competitive
 Global location of R&D facilities
 Close to production (as product cycles get shorter)
 Close to expertise (Indian programmers?)
 Why GSCM????
GLOBAL COST FACTORS
 Availability of skilled/unskilled labor at lower cost
 Integrated supplier infrastructure (as suppliers become
more involved in design)
 Capital intensive facilities like tax breaks, price breaks etc.

POLITICAL AND ECONOMIC FACTORS

 Trade protection mechanisms:
 Tariffs, Quotas, Voluntary export restrictions, Local content
requirements, Environmental regulations, Government
procurement policies (discount for local)
 Exchange rate fluctuations and operating flexibility
 Global Supply Chain System
 International distribution systems :
- Manufacturing(domestically), Distribution (overseas)
 International suppliers :
- Raw materials and Components(foreign suppliers), Final
assembly/ Manufacturing(domestically),
 Offshore manufacturing :
- Product is sourced & manufactured in a single foreign location,
- Shipped back to domestic warehouses for sale and distribution.
 Fully integrated global supply chain :
- Products are supplied, manufactured and distributed from
factories located throughout the world
- In a truly global supply chain, it may appear that the supply chain
was designed without regard to national boundaries.
- The true value of a global supply chain is realized by taking
advantage of these national boundaries
 What is Risk?
A risk is an event that, if it occurs,
causes either a positive or negative
impact on a Organization/
Operations

Risk is a measure of future

uncertainties in achieving program
performance goals and objectives
within defined cost, schedule, and
performance constraints.

Not all risks are negative

 Some events (like finding an easier way to do an activity) or
conditions (like lower prices for certain materials) can help your
project! When this happens,
 we call it an opportunity… but it’s still handled just like a risk.
 What is Risk Management?
 “The systematic application of management policies,
standards, procedures, and practices to the tasks of
identifying, assessing/analyzing, responding to, and
monitoring to project risk”
 A structured, iterative process with defined purpose and
objectives
 Proactive and anticipatory
 Objective is to decrease the probability and/or impact of
negative events OR increase the probability and/or
impact of positive events

Risk Management needs to be integrated into an organization’s decision making process

 The Risk Management Process

Risk Appetite:
The risk an organization is willing
to take in the pursuit of its
strategy.

Risk capacity:
The maximum level of risk at which
an organization can operate, while
remaining within constraints implied
by capital and funding needs and the Risk Management
expectation of shareholders.

Risk profile :
A risk profile can be defined as an organization's Feedback loop is at every step
entire risk landscape reflecting the nature and
scale of its risk exposures aggregated within and
across each relevant risk category.
Risk Identification

Searching for Potential Risk

 Risk Identification

 Risk Identification
 Generate a list of possible risks: Macro risks first,
then specific events
 Purpose
 Answer the question “WHAT CAN GO WRONG?”
 Looking at current and proposed staffing, process, supplier,
operational, employment, resources, dependencies etc.
 Monitoring test results

 Review potential short falls

 Analyzing negative trends

Risk Identification Techniques/Tools

 Brainstorming
 Checklists/Risk Profiling- Lists developed to aid in
identifying risks
 Examining the assumptions
 Interviewing
 SWOT Analysis
 Delphi Technique
 Diagramming Techniques
 Cause & effect – Ishikawa or Fishbone
 Flow Charts etc.
 5W2H framework
5W2H Typical Questions Improvement Questions
WHO? Who does this? Should someone else do it?
Who should be involved but is Could fewer people do it?
not? Could approvals be eliminated?
Who is involved but shouldn’t be?
Who has to approve?
WHAT? What is done? Does every step have to be done?
What is essential? Are steps omitted?

WHEN? When is this activity started? Can it be done at a different time?

When does it end? Can cycle time be shortened?
When is it repeated? Can it be done less frequently?
WHERE? Where is this activity done? Can it be done elsewhere?
WHY? Why do we do this? Can it be eliminated?
Can another group do it?
Can it be outsourced?
HOW? How is this done? Is there a better way?
How much? How much does it cost? How much less could it cost?
 Identifying Risk

 Continuous, Iterative Process

 The sooner it is identified the better it is
 The more the involvement of stakeholders the
better the process outcome
 A fact is not a risk- If you know something is going to
occur then you plan for it not the risk of it. RISK vs
PROBLEM
 Be specific- identify the risk and a trigger/cause of the risk
 Don’t try to do everything at once- qualify, quantify, or
remedy
 Identifying a candidate risk

RISK

Candidate Uncertainty Loss Perpetual?

Possible

No No Yes

No impact irresolvable
Weakness/
issue (not interested)
Sample Assessment of Corporate Level Risks

http://www.mckinsey.com/insights/operat
ions/agile_operations_for_volatile_times
A global automaker’s demand–supply simulations
revealed inflexibility.
http://www.mckinsey.com/insights/operatio
ns/agile_operations_for_volatile_times
 The Global Supply Chain Institute (2014)

 Just 25 percent of a typical company’s end-to-end

supply chain is being assessed in any way for risk.
 90 percent of the firms do not formally quantify risk
when sourcing production.
Major Global Supply Chain Disasters in recent past
 August 2007, Mattel had to recall 18 million toys manufactured in china
because of lead paint issues.
 2010 volcano eruption in Iceland having on European air traffic .
 8.9 earthquake and resulting tsunami in Japan
 Toyota suspended production of the Prius in Japan after this event,
losing 140,000 badly needed vehicles.
 Boeing experienced major delays as a result of the tsunami because the
impacted Japanese suppliers produce
35 percent of Boeing 787 components and 20 percent of Boeing 777
components.
 General Motors had to halt production in several plants because of
shortages from Japanese suppliers.
 honda faced severe problems because 113 of its suppliers were located in
the affected region of Japan.
 These twin disasters in Asia (Japan tsunami and Thailand flood)in 2011
produced an estimated $240 billion in lose
 Sources of Risks Global supply
Chain risk
 quality and safety challenges,

 Forecast inaccuracy,
 longer lead times,
 Strike / culture clashes
 supply disruptions caused by
 supply shortages, global customs,
 legal issues,  foreign regulations
 security problems,  port congestion,
 Regulatory and environmental  political and/or economic
compliance, instability in a source country,
 weather and natural disasters, or and
 terrorism.  changes in economics such as
exchange rates. Etc

 Supplier risk
External Sources of Risks

Economic

Environm
Social
ental

External
Sources
of Risk

Market Legal

Political
 Internal Sources of Risk

Financial

Health and
Operational
Safety
Internal
Sources
of Risk

Ethical Project

Technological

22
3 Step Process
Recommendations to Manage Supply Chain Risk

 Risk identification
– What can go wrong?
 Risk assessment
– What is the likelihood it will go wrong?
– What is the magnitude of the consequences and
overall impact on the firm?
– how quickly will the problem be discovered?
 Risk mitigation and management
– What options are available to mitigate the risks?
– What are the costs and benefits of each option?
Recommendations to Manage Supply Chain Risk

Risks identified and mitigated today

become obsolete tomorrow.

Risk management must be an

ongoing process.
Supply Chain Risk Ratings
 Risk Register- Risk communication

 The main output of the risk identification process is a

list of identified risks and other information needed to
begin creating a risk register
 A risk register is:
 A document that contains the results of
various risk management processes and
that is often displayed in a table or
spreadsheet format
Sample Risk Register
Failure Mode Effect Analysis for Risk Assessment

 Failure Mode & Effects Analysis

 Compute Risk Value
1 125
Likelihood
Impact (I) Risk value
IxpxD (probability) p

Detection
Difficulty D
Risk Assessment

Assessing the impact of Risks

 Risk Assessment- Heat Map (Risk Map)
 Probability of Occurrence
Risk #1 vs Impact (1 to 5 Scale)
 Priorities: Red (High); Yellow (Med); Green (Low)
Higher Impact

 Review/Present
Risk #4
Chart Periodically
Impact

Risk #3 Risk #2
Lower Impact

Risk #5

Lower Probability Higher Probability

Probability of Occurrance
 Risk Response Planning

 “What are we going to do about it?”

 Techniques/Strategies:
 Mitigating Risk
 Transferring
 Avoiding Risk
 Sharing Risk
 Accept/Retaining Risk
 Strategy should be commensurate with risk
 Hint: Don’t spend more money preventing the risk
than the impact of the risk would be if it occurs 
 The Risk Response Plan/Risk Response Register
 Risk Response Planning

Mitigating Risk-
Conducting more
tests, add resources Avoiding Risk: Changing
or time to project, the project plan to
Designing eliminate the risk or
redundancy into a
condition
system
• Reducing the
likelihood an
adverse event will
occur.
• Reducing impact of
adverse event.
 Risk Response Planning

Transferring Risk- Insurance, Accept/ Retaining Risk: Making a

performance bonds, warranties, conscious decision to accept the risk.
guarantees etc. Paying a premium
to pass the risk to another party.
  You should be extremely sensitive to the manner in
which your global suppliers do business.

 Most firms realize that third-party suppliers can have a

huge impact on their business.

 over the 1980 to 2012 period, there were 71 mega natural

disasters, causing $766 billion in damage—of which
only $302 billion was insured—and the loss of over
115,000 lives. IS INSURANCE IMPORTANT TOOL?

Because of the impact on the corporation, global supply chain

strategies must include a thorough risk analysis
 Global Supply Chain Risk Mitigation
 Insurance
 Redundancy like capacity/ inventory
 Sensing and Responding
 Adaptability/Agility of Supply chain Partners: Competent partners
 Expedited shipping / transportation
 Design for globalization
 Strategic Supplier Segmentation
 Use of upcoming Technologies understanding its risk
 Disaster preparation: The idea is to know whom to call if a natural
disaster strikes,
 contingency planning: leading companies have documented
contingency plans for risks that would have a devastating impact.
 Forward buying or hedging: hedging is a way for a company to
minimize or eliminate foreign exchange risk,
 Customisation vs. standardisation
Pure Segmented Customised Tailored Pure
Standardisation Standardisation Standardisation Customisation Customisation

Design Design Design Design Design

Standardisation

Fabrication Fabrication Fabrication Fabrication Fabrication

Customisation
Assembly Assembly Assembly Assembly Assembly

Distribution Distribution Distribution Distribution Distribution

 Risk Management Process Model
Risk
Identification
Risk
Tracking

Risk
Analysis
Mitigation- Treat

Avoidance- Terminate
Risk
Mitigation Transfer
Planning
Accept &
Set Strategy and Retaining- Tolerate
Objectives
Risk
Plan
Implementation
(Chaos)
Release Data: The source of risk
(continuously scan the environment)

Refinement: Ways to measure the

identified source of risk

Discover: The source of risk

(continuously scan the environment)
Sources of Risks
 Managing the Unknown-Unknown

 Invest in redundancy

 Increase velocity in sensing and responding

 Create an adaptive supply chain community

 Redundancy Example

 Respond to unforeseen events by careful analysis of

supply chain trade-offs
 A company with 40 facilities over the world
 Initial analysis for reduction of cost by $40M a year
 shut down 17 of its existing manufacturing facilities
 leave 23 plants operating
 satisfy market demand all over the world.
 Redundancy Example:
Problems with New Decision
 New design left no plant in North America or Europe
 Long and variable supply lead times
 Higher inventory levels.
 Remaining manufacturing facilities in Asia and Latin
America fully utilized
 Any disruption of supply from these countries, due to
epidemics or geopolitical problems, would make it impossible
to satisfy many market areas.
 How can one design the supply chain taking into
account epidemics or geopolitical problems that are
difficult to quantify?
 Analyze the cost trade-offs
 Redundancy Trade-Offs

Increase in total cost negligible compared to increases

in redundancy and hence risk.
 Sensing and Responding

 Speed in sensing and responding can help the firm

overcome unexpected supply problems
 Failure to sense could lead to:
 Failure to respond to changes in supply chain
 Can force a company to exit a specific market
 Sensing and Responding
Example
 Different responses of Nokia and Ericsson on a fire
at one of the supplier’s facility
 Supplier was Philips Semiconductors in Albuquerque,
Mexico
 Nokia:
 Changed product design to source components from
alternate suppliers
 For parts that could not be sourced from elsewhere,
worked with Philips to source it from their plants in
China and Netherlands
 All done in about five days
 Sensing and Responding
Example
 Ericsson’s experience was quite different
 Took 4 weeks for the news to reach upper management
 Realized five weeks after the fire regarding the severity
of the situation.
 By that time, the alternative supply of chips was already
taken by Nokia.
 Devastating impact on Ericsson
 $400M in potential sales was lost
 Part of the loss was covered by insurance.
 Led to component shortages
 Wrong product mix and marketing problems caused:
 $1.68B loss to Ericsson Cell Phone Division in 2000
 Adaptability

 It is the most difficult risk management method to

implement effectively.
 Requires all supply chain elements to share the
same culture, work towards the same objectives
and benefit from financial gains.
 Need a community of supply chain partners that
reorganize to better react to sudden crisis
 Adaptability
Example
 In 1997, Aisin Seiki the sole supplier of 98% of
brake fluid proportioning valves (P-valves) used by
Toyota
 Inexpensive part (about $7 each) but important in
the assembly of any car.
 Saturday, February 1, 1997:Fire stopped Aisin’s
main factory in the industrial area of Kariya,
 Two weeks to restart the production
 Six months for complete recovery
 Toyota producing close to 15,500 vehicles per day.
 JIT meant only 2-3 days of inventory supply
 Recovery Effort by Toyota
 Blueprints of valves were distributed among all
Toyota’s suppliers
 Engineers from Aisin and Toyota relocated to
supplier’s facilities
 Existing machinery adapted to build the valves
according to original specifications
 New machinery acquired in the spot market
 Within days, firms with little experience with P-
valves were manufacturing and delivering parts to
Aisin
 Aisin assembled and inspected valves before shipment to
Toyota
 About 200 of Toyota’s suppliers were involved
Vehicle Production & P-Valves Inventory
 Outcome

 Accident initially cost:

 7.8B Yen ($65M) to Aisin
 160B Yen (or $1.3B) to Toyota
 Damage reduced to 30B Yen ($250M) with extra shifts
and overtime
 Toyota issued a $100M token of appreciation to their
providers as a gift for collaboration
 Single Sourcing and Adaptability
 Single sourcing is risky
 Achieves economies of scale
 High quality parts at a low cost
 JIT mode of operation builds a culture of:
 Working with low inventories
 Ability to identify and fix problem quickly
 Entire supply chain was stopped once the fire occurred
 Prompted every company in the chain to react to the
challenge
 Managing Known-Unknown Risk

 Speculative Strategies : A company bets on a single scenario,

with often spectacular results if the scenario is realized, and
dismal ones if it is not.
 Hedge Strategies : A company designs the supply chain in such
a way that any losses in part of the supply chain will be offset by
gains in another part.
 Multiple plants in different countries, where, Certain plants more
profitable at times than others
 Move production between plants to be successful overall.

 Flexible Strategies
 Flexible Strategy

 Requires a flexible supply chain

 multiple suppliers

 flexible facilities

 excess capacity

 various distribution channels

 Can be expensive to implement

 coordination mechanisms

 capital investments

 loss of economies of scale

 Approaches to Flexible Strategy

 Production shifting : Flexible factories, excess capacity and

suppliers used to shift production from region to region to take
advantage of current circumstances.

Information sharing : Information can be used to anticipate

market changes and find new opportunities.

Global coordination : Having multiple facilities worldwide

provides a firm with a certain amount of market leverage that it might
otherwise lack.

Political leverage : The opportunity to move operations

rapidly gives firms a measure of political leverage in overseas
operations. For example, if governments are lax in enforcing contracts
or international law, or present expensive tax alternatives, firms can
move their operations.
 Requirements for Global Strategy
Implementation
 Product development : It’s important to design products that
can be modified easily for major markets, and which can be
manufactured in various facilities.
 Purchasing : A company will find it useful to have management
teams responsible for the purchase of important materials from many
vendors around the world. In this way, it is much easier to ensure that
the quality and delivery options from various suppliers are compatible
 Production : Excess capacity and plants in several regions are
essential if firms are to take full advantage of the global supply chain by
shifting production as conditions warrant.
 Demand management : It involves setting marketing and
sales plans on a regional basis (based on projected demand and
product availability) .
 Order fulfillment :To successfully implement a truly flexible
SCM system, a centralized system must be in place so that regional
customers can receive deliveries from the global supply chain with the
same efficiency as they do from local or regionally based supply chain.
 Other Issues in Global SCM

 Region-specific products Vs True global products

 Local Autonomy vs Central Control

 Exchange rate fluctuation

 Local collaboration may become competitors

 To access new market may require handing over critical

manufacturing and engineering expertise

 At any time the threat of protectionism might appear.

Final Comments